Euro Area: PMI bounces back in May but remains deeply entrenched in contractionary terrain
The Flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, recovered some lost ground from April’s all-time low of 13.6 and came in at 30.5 in May. That said, the PMI remained well below the 50-threshold that distinguishes expanding business activity from contracting business activity in the Eurozone.
The services sector continued to be particularly hard hit by the economic disruption caused by the coronavirus outbreak, while manufacturing activity recorded a less severe but still sharp downturn. Activity in the travel, tourism, accommodation and restaurants industries continued to bear the brunt of the impact from the lockdown measures. That said, the fall in output, new orders and employment in the services sector moderated somewhat from April. The manufacturing PMI, similarly, remained significantly below the 50-threshold due notable albeit softer contractions in output, new orders and employment. Meanwhile, firms’ expectations of future output also recovered somewhat but remained strongly pessimistic.
Assessing the Eurozone’s two largest economies, France’s and Germany’s composite PMI regained some lost ground but remained in contractionary terrain, with Germany’s composite PMI again pointing to a somewhat milder downturn than in France.
Commenting on the release, Chris Williamson, chief business economist at IHS Markit said:
“Second quarter GDP is still likely to fall at an unprecedented rate, down by around 10% compared to the first quarter, but the rise in the PMI adds to expectations that the downturn should continue to moderate as lockdown restrictions are further lifted heading into the summer.”
Meanwhile, Bert Colijn, senior Eurozone economist at ING, stated:
“The increase in PMI was even somewhat better than expected, but at the same time it is a smaller bounce back than what the Chinese economy experienced in March yet it confirms that a quick recovery of output is not what we’re seeing. People hoping for a v-shaped recovery should go back to the alphabet and pick another letter.”